That the City Council conduct a public hearing and APPROVE THE FIRST READING OF ORDINANCE NO. ____ ENTITLED:  AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF LA HABRA FINDING THAT THIS ORDINANCE IS EXEMPT FROM REVIEW UNDER THE CALIFORNIA ENVIRONMENTAL QUALITY ACT AND TERMINATING DEVELOPMENT AGREEMENT 18-03 BETWEEN THE CITY OF LA HABRA AND RIVER DISTRIBUTING CO., LLC, DBA CRESCO LABS, FOR A CANNABIS DISTRIBUTION FACILITY AT 1721 EAST LAMBERT ROAD, UNIT B.

Background
On November 8, 2016, the voters in California approved Proposition 64 (“Prop 64”), a statewide measure that enacted the Adult Use of Marijuana Act (“AUMA”), to be codified in various sections of the California Health and Safety Code and California Business and Professions Code. The AUMA allows adults ages 21 and over to use, possess, and cultivate limited amounts of marijuana, and establishes a state licensing and regulatory framework for marijuana businesses serving the recreational cannabis market. The AUMA also allowed local jurisdictions to prohibit outdoor cultivation of marijuana for personal use, to regulate indoor cultivation of marijuana for personal use, and to prohibit all nonmedical and recreational marijuana businesses from locating and operating within their jurisdictions.

 

On April 2, 2018, the City Council adopted Ordinance No. 1791 repealing Section 18.08.140 (Cultivation of Marijuana Prohibited) of Chapter 18.08 (General Regulations) of Title 18 (Zoning) and adding Chapter 18.22 (Commercial Cannabis Activity) to provide regulations for commercial cannabis distribution businesses. On October 1, 2018, the City Council adopted Ordinance No. 1794 amending Chapter 18.22 to regulate cannabis testing laboratories; and, on December 21, 2020, the City Council adopted Ordnance No. 1827 amending Chapter 18.22 to regulate non-store front retail cannabis business.  Chapter 18.22 establishes the City's regulations pertaining to these types of cannabis businesses, as well as requirements to apply for and operate these types of businesses (see Attachment 2). Each type of cannabis business is limited to a maximum of four licenses to operate in the City, subject to successfully navigating the application/background review process and receiving City Council approval of a Development Agreement. To date, the City Council has approved Development Agreements for the operation of three distribution businesses (warehouse operations) and four non-storefront retail businesses (see Attachment 3).  The Community and Economic Development Department maintains a webpage that provides an overview of the type of cannabis permits that are available and the application process. While staff receives occasional inquiries, the City has not received any applications to operate any cannabis testing laboratories or to obtain the remaining cannabis distribution license.

River Distributing Co., LLC
On January 22, 2019, the City Council approved a development agreement between the City and River Distributing Co., LLC, for the operation of a cannabis distribution facility at 1721 East Lambert Road, Unit B (see Attachment 4). 

On March 15, 2023, River Distributing, Co., LLC, provided the City with a 60-day notice announcing the closure of their facility. The company’s last day of operation was June 15, 2023, and their state license (C11-0000608-LIC) expired and was surrendered to the State Department of Cannabis Control (DCC) on July 1, 2023.  Over its almost four years of operations, the City received more than $1.4 million in negotiated development fees and tax payments from this business, as shown below in the Fiscal Impact/Funding section of this staff report. In addition to closing their La Habra facility, River Distributing also announced the closure of their West Sacramento location. In speaking with representatives from River Distributing, they attribute the closure of their facilities to the fact that cannabis products are not easily available at local dispensaries and can be purchased for a much lower cost in the illicit market. Additionally, representatives stated that the entitlement process for cannabis businesses in California is extremely extensive and is the reason that many licenses are not being renewed across the state.  
 

Process to Terminate Development Agreement
In consultation with the City Attorney’s Office, and because development agreements must be approved by ordinance per California Government Codes 65868 and 65867, the City is required to conduct a public hearing and adopt an ordinance terminating the development agreement with River Distributing, Co., LLC. 

 

California Government Code 65868 provides that:

“A development agreement may be amended, or canceled in whole or in part, by mutual consent of the parties to the agreement or their successors in interest. Notice of intention to amend or cancel any portion of the agreement shall be given in the manner provided by Section 65867. An amendment to an agreement shall be subject to the provisions of Section 65867.5.”

California Government Code 65867 provides that:

“A public hearing on an application for a development agreement shall be held by the planning agency and by the legislative body. Notice of intention to consider adoption of a development agreement shall be given as provided in Sections 65090 and 65091 in addition to any other notice required by law for other actions to be considered concurrently with the development agreement.”

Because River Distributing has ceased operations and closed its facility in La Habra, and staff has verified this closure, staff recommends that the City Council adopt an ordinance to terminate this development agreement. Staff will continue to accept applications for cannabis distribution licenses in the event that other distributors would like to apply for this license.

Since opening its facility, River Distributing submitted quarterly development fee/tax payments to the City per their development agreement. 
 
The following table shows the breakdown of payments submitted throughout the years: 

With the closure of River Distributing, no further payments will be received from this licensed business.

The recommended action is consistent with the following goals of the La Habra General Plan:

ED. 2.3 Business Attraction-Retention

In addition, the recommended action is consistent with the following aspects of the City Council Goals and Objectives:

Goal 5. Objective D- Continue to improve the City business retention and expansion program

Goal 5. Objective F- Encourage the Development Community to support community programs, activities, and events as good corporate partners

Goal 6. Objective E- Build and maintain partnerships and collaborations with other local government agencies, the business community, local nonprofit organizations, and the faith-based community